ANKARA: Despite a pick-up in domestic consumption, the gross domestic product (GDP) growth in Turkey slowed in the first quarter because of slower inventory build-up, according to the July edition of the World Bank’s Turkey Regular Economic Brief, issued in Ankara on July 15.
The seasonally and working day adjusted GDP growth slowed to an annualized rate of 3.3 percent quarter-on-quarter in the first quarter, as compared with 4 percent in 2015 as a whole, it said. Inventory accumulation that led growth in the previous quarter slowed significantly in the first quarter, bringing growth down, it added.
“Public investment declined somewhat to offset the current spending increase, and private investment weakened as well. Net exports had a negative impact, as imports grew faster than exports because of a stable [Turkish] Lira and stronger domestic consumption,” it said. Nevertheless, exports showed signs of recovery in the first quarter, following a contraction in the previous quarter, and contributed positively, it added.
“On the other hand, private consumption strengthened thanks to a 30 percent rise in the minimum wage, recovery in consumer credit growth and a fall in food prices, while government spending rose considerably because of election promises,” the report said. “The World Bank Brief notes that inflation eased significantly in recent months, mostly driven by a fall in food inflation,” it added.
The brief also noted that the Central Bank loosened monetary policy against the favorable inflation backdrop. The recovery in portfolio inflows and significantly lower headline inflation due to the fall in food prices created a favorable environment for the Central Bank to cut interest rates.
The Central Bank cut the overnight lending rate by 175 basis points (bps) to 9 percent between March and June, while keeping the 1-week repo and overnight borrowing rates unchanged. The fall in the average cost of Central Bank funding was passed on to loan rates with 70 bps and 100 bps drops in consumer and commercial loan rates, respectively.
